Mnuchin plans to close several emergency Fed facilities

Washington — Treasury Secretary Steven Mnuchin said he has no plans to extend some major emergency lending programs beyond the end of the year. Relieves the economic downturn caused by the virus.

Mnuchin said Thursday that the federal program to support the corporate and municipal bond markets and the program to expand lending to mid-sized companies would not expand. The program will expire at the end of 2020.

Operated by the Federal Reserve, a pandemic-era program that uses Treasury funds to guarantee losses has settled key markets since the coronavirus settled in March. Provided a backstop. Removing them could leave a key corner of the financial world vulnerable to the type of volatility cascaded through the financial system in March. And by asking the Fed to return the unused money, Mnuchin was able to prevent Biden’s next Treasury Secretary from resuming efforts in 2021.

“The Federal Reserve hopes that the set of emergency facilities established during the coronavirus pandemic will continue to play an important role as a backstop for a tense and fragile economy,” the central bank said in a statement. Said.

The program was backed by a $ 454 billion budget created as part of the government’s pandemic-ready package. Because of the way its emergency lending power works, Fed Chair Jerome H. Powell requires the approval of the Treasury Secretary to make major changes to the terms of the program. Extensions to the end date are counted as significant changes.

“The Federal Reserve is requesting the return of unused funds to the Treasury,” Mnuchin said in a Thursday letter. “I was personally involved in drafting the relevant parts of the legislation,” he said, believing that it was Congress’s intention to suspend the program at the end of the year.

Mnuchin extends other emergency lending programs that do not include parliamentary funding, such as servicing the money market for corporate bonds, servicing money market funds, and blocking government lending to SMEs. I agreed to do it.

Allowing many of the Fed’s more innovative programs to expire at the moment the virus continues to proliferate can confuse Democrats and harm the economy as soon as a new administration is launched.

Many facilities are underutilized, such as those that buy state and local debt and those that encourage banks to lend to SMEs. But that’s because they are designed as backstops. That is, the borrower may only use them when the time is bad. With the increasing number of cases of coronavirus, the economy could deteriorate again, making them more essential.

Several programs, including programs to support corporate bonds, worked by convincing investors that the Fed was ready to intervene as a backstop. Removing them now can undermine that confidence.

If the Federal Reserve repays undeveloped funds, the democratic government cannot simply resume the program after the end of the year, as new loans cannot be made using the parliamentary budget. The Treasury’s loan to the Fed (new loans to other entities and bond purchases) was already unpaid, so the facility could only be expanded. Guaranteeing a facility from credit losses requires a new budget or a more creative solution.

This is a developing story. Please check for updates.

Mnuchin plans to close several emergency Fed facilities

Source link Mnuchin plans to close several emergency Fed facilities

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